More jobs under threat as Vodafone seeks further £1bn savings

Published on Tuesday 10 November 2009 20:25

VODAFONE raised the prospect of further job losses yesterday, as it doubled the size of its cost- cutting programme.

The world's largest mobile phone provider, by market capitalisation, has been stripping out costs to offset falling growth in saturated markets in Europe.

Yesterday, chief executive Vittorio Colao brought forward a deadline for the group to save 1 billion by three months to the end of 2009, achieving its original savings target a year earlier than expected.

He also announced that the group was seeking a further 1bn in savings by 2012.

Savings would come from increased leveraging of its mobile network, better product sourcing and scale as well as "overhead reduction".

A company spokesman said that while there might be some impact on jobs from the cuts, the focus would be on savings from improved technology.

Vodafone indicated that it expected revenues to fall further in many established markets, with about half of the planned savings used to "offset inflationary and volume pressures".

The news came as Vodafone reported a 73 per cent rise in profits for the six months to 30 September to 5.7bn, on revenue up 9 per cent to 21.8bn.

It also confirmed its guidance for the year of adjusted operating profit "in the range" of 11bn to 11.8bn with free cash flow of up to 6.5bn.

Colao said Vodafone was hitting its targets. "The group has performed in line with our expectations and we have made strong progress with our strategic priorities, in particular in mobile data and cash generation," he said.

While the results were broadly in line with expectations, the shares dropped on further deterioration in its key home market.

Revenue in Britain dropped 5.7 per cent, with analysts blaming falling demand on a defection of thousands of high-value customers to rival O2, which has enjoyed a two-year monopoly on sales of the popular Apple iPhone.

O2's exclusive deal for the touch screen phone ended yesterday, when Orange began stocking it for the first time. While Vodafone has also agreed terms to supply the iPhone, it will not begin stocking the phones until early in 2010.

Hargreaves Lansdown analyst Keith Bowman said that, while the results had met expectations, "a continued dependency on cost-cutting measures fails to truly inspire".

He added: "Pressure on the group's customer base remains evident, particularly across Europe, while the company has to date failed to capitalise on innovative gadget launches such as that given to rival Telefonica and its exclusive arrangements with Apple's iPhone."

Shares in the group fell 2p to 135.95p on the results, despite a 3.5 per cent increase in its interim dividend to 2.66p per share.